FVA Explained: Is There a Solution?

21 Pages Posted: 13 Feb 2014

See all articles by Dongsheng Lu

Dongsheng Lu

The Bank of New York Mellon

Frank Juan

The Bank of New York Mellon

Date Written: December 23, 2013

Abstract

One issue that has received a lot attention in derivative valuation recently is funding valuation adjustment (FVA), which as the name suggests is intended to reflect the funding cost/benefit of a derivative contract. However, there continues to be some confusion in the market place as to what FVA is. Further, there is an active debate around whether FVA should even be included in the definition of fair market value both for trade quotation and financial reporting. In this note, we would try to clarify the calculation of FVA and how it should be included in the reported fair market value and the reason behind it.

Keywords: Funding Value Adjustment, Valuation Adjustment, FVA, Credit Value Adjustment, CVA, DVA, RVA

JEL Classification: G12

Suggested Citation

Lu, Dongsheng and Juan, Frank, FVA Explained: Is There a Solution? (December 23, 2013). Available at SSRN: https://ssrn.com/abstract=2371510 or http://dx.doi.org/10.2139/ssrn.2371510

Dongsheng Lu (Contact Author)

The Bank of New York Mellon ( email )

One Wall Street
New York, NY 10286
United States

Frank Juan

The Bank of New York Mellon ( email )

One Wall Street
New York, NY 10286
United States

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